Use your money and your credit well and you will thrive. Financial knowledge is the key to personal financial success.

Friday, May 9, 2014

You have your high school diploma. Now what’s next?

You got your diploma, went to grad night, and stayed out until morning. What are your plans? You may have plans for college locally or away. You may have a job lined up for the summer. That’s what’s next for you, but what’s next for your money?

1. Have you opened a checking account? Was it at a bank or a credit union? If you opened your account at a commercial bank, you must enjoy paying fees to the bank. If you don’t enjoy paying fees to a bank, you can open your checking at a credit union and keep more of your money. It is not that credit unions don’t charge any fees, they just charge fewer of them than the banks do. Are you required to have a minimum balance in your bank account to avoid monthly service charges? Are you required to have direct deposit for a free checking account? If you don’t maintain these things, how much is the monthly charge? $10? $15?

Generally, at credit unions that is not the case. Most credit unions often offer checking accounts that are free of fees. There are no monthly service charges or minimum balance requirements. Direct Deposit is encouraged but not a requirement for a free account. Credit unions believe it is better for their members to keep their money than to take it from them in the form of banking fees.

2. Are you working? Then you should be saving money. Save what you can afford. If you have a car, you will thank yourself for saving some money. Cars don’t take care of themselves. Tires will go flat, batteries will go dead, hoses will spring leaks, and belts will break, all costing you money. Put some money away for that inevitable day when something goes wrong with the car. Just to tow your car five miles may cost you $100! Do you have $100 in your savings today? If not, you should have that as a minimum start amount and keep saving.

While we are working on savings, let’s talk about an emergency fund. As time goes by, an emergency fund will be important to you. A general rule of thumb for an emergency fund is six months worth of income. The emergency fund exists to fill gaps in your budget when unexpected expenses arise. Not just for fixing your car, but for emergencies such as getting transportation to visit sick family members, or your own emergency medical bills, or paying for your insurance deductible after a car accident are just some examples of good uses for your emergency fund. That emergency fund exists in case we find ourselves unemployed. That six months income in the fund may be what we need to bridge our income gap between jobs! So what’s the best way to save? Try allocating a portion of your check into a savings account as part of an automatic deposit or transfer. Think about it. If you get paid twice a month, that’s 26 checks in a year, if you only took $10 per check and had it automatically deposited into your savings, that’s $260. Now what if you doubled that to $20 per check? That’s $520 you’ve saved! And since it’s being automatically deposited, you probably won’t even notice it coming out of your check.

3. Do you have credit? Pay your bills on time so you don’t incur any bad credit and to help build strong credit. An unpaid bill can become a collection and hurt your chances to access credit. A cosigner can be very helpful in accessing credit such as a car loan or credit card. The cosigner is on the loan with you so they would suffer if you fail to pay on time. The cosigner is essentially putting their good credit at risk to help you. This should be treated with great respect. You must stay on top of any credit commitments made with a cosigner.

Are you more independent? Don’t want a cosigner? Perhaps a secure Visa or Master Card is in your future. Meriwest Credit Union (as well as many other CU’s) offers a secure Visa card that can be started for as little as $300. Send a $300 check with your application and, if approved, your will receive a $300 Visa credit card. Want a higher credit limit? Increase your security deposit. Your incentive is that if you don’t manage the card well you are putting your savings at risk. If the card is not paid on time, it could be closed and paid off with your secured savings. You would receive whatever is left after pay off. Be aware that these cards usually have an annual fee as well.

Whether you initiate credit with a cosigner or through the secured route, it will take some time to get yourself established. Rome was not built in a day and we don’t build a credit history in three months! Check CreditKarma.com to see your credit score and watch it grow as you manage your credit.

4. Do you have a car? Do you have adequate car insurance? There are a lot of car insurance companies that advertise very low rates and for good reason! They mainly quote the cost of the California Minimum Insurance. What are those minimums?

$15,000 for injury/death to one person.

$30,000 for injury/death to more than one person.

$5,000 for damage to property.

Let’s say you bought this exact amount of insurance. It is very inexpensive. Why? You have very little insurance. Let’s suppose you hit a new Mercedes Benz E-Class sedan from behind and the owner gets a neck injury like whiplash. If the car is totaled, it will cost you over $50,000 to replace it. How much do you suppose the hospital bills would be for whiplash? $100,000? $250,000? Whoa! More than that? Yep.

In this case, your insurance company will give the victim $5,000 for the damage to their car and $30,000 for the hospital stay. You are on the hook for the rest of it and it could be in the hundreds of thousands of dollars. If you don’t have hundreds of thousands of dollars in your emergency fund, you might want to budget for adequate insurance. It may cost you more than the super cheap minimum insurance, but it will help you sleep at night knowing you are not at risk of filing bankruptcy for a car accident.

These four things, opening a checking account, starting your savings, establishing your credit and properly insuring your car can make your financial life so much easier and put you ahead of the game. Many college graduates are not ready for their lives financially when they leave college. If you start your post high school planning with these four simple ideas, you can build a financial foundation that will serve you and your future family for the rest of your days.

* * *All About Business Credit CardsOn Wednesday May 14th at 10 am PDT the Credit Union Guy, Meriwest CU's Community Relations Manager, Greg Meyer, will take part in a Google+ Hangout with the team at Credit Cards.com to talk about understanding Business Credit Cards. It's fifteen minutes that will bring you up to date on the differences and the proper uses of a business card. Here is the link to watch: http://bit.ly/1i20MX4 .